Colombia’s Congress approves tax reform in bid to raise billions

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Lawmakers in Colombia’s Congress have approved a tax reform bill that seeks to raise billions of dollars in the coming years to make up for lost oil revenue and preserve the Andean nation’s investment grade credit rating.

Lawmakers in the lower house approved the reform by 78-14 on Thursday, while the Senate voted 46-16 in favor in the early hours of Friday morning.

The reform, expected to bolster tax revenue by 6.2 trillion pesos ($2.07 billion) in 2017, is seen as crucial to preserving Colombia’s BBB investment grade credit rating and is needed to fund anti-poverty programs. The government forecasts revenue will reach 24.1 trillion pesos by 2022.

The bill will raise value-added tax to 19 percent from 16 percent, excluding basic products such as food and medications, among other changes.

“This is a reform for future governments – it’s not short-term,” Finance Minister Mauricio Cardenas said after the Senate vote. “This will help us starting now to preserve Colombia’s credit rating – that is very important for the country and the economy.”

Some details of the reform will be negotiated in meetings between lawmakers from both houses next week, before President Juan Manuel Santos signs the bill into law. The reform will be applicable from Jan. 1, 2017.

In a bid to stimulate investment and create jobs, the reform will gradually lower income tax on businesses to 33 percent in 2019, down from the 43 percent currently.

The bill will also stiffen penalties against tax evasion.

Revenue from state oil company Ecopetrol and taxes and royalties from other producers have all but disappeared as the global price of crude plunged over the last year.

Without approval of the reform, tax revenue next year would reach 126.9 trillion pesos, the government has said.

Economic growth will slow to an estimated 2 percent this year, according to the government, from 3.1 percent in 2015. Next year growth is seen at 3 percent.

Improvements in tax collections are also key to maintaining the so-called fiscal rule, which sets a central government deficit of 3.3 percent in 2017, down from 3.9 percent forecast for this year. ($1 = 2,996.03 Colombian pesos)